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The Progressive Economics Forum

The Privatization of Social Housing

Last weekend, I spoke on a panel at the Annual Conference of the Ontario Non-Profit Housing Association.  The panel was inspired in large part by the recent debate in Toronto over Mayor Rob Ford’s attempt to sell social housing units to private buyers.  The panel, entitled “To Privatize or Not to Privatize? That is the question,” included myself, Vince Brescia (President and CEO of the Federation of Rental-housing Providers of Ontario), John Dickie (President of the Canadian Federation of Apartment Associations), and Margie Carlson (Director of Policy Research and Networks at the Social Housing Services Corporation).

Here are some of my speaking notes:

-Canada already has one of the most private-sector oriented rental housing markets in the OECD.  Consider for example our “rate of social renting,” which is the percentage of a jurisdiction’s households that are tenants in social housing.  The United Kingdom’s rate of social renting is 18%.  In France, it’s 19%; in the Netherlands it’s 34%; and in Sweden it’s 32%.  Canada, by contrast, has a rate of social renting of just 5%, which is considerably less than the OECD average.

-Social housing generally refers to government-subsidized housing for low-income households.  And there are two main types of costs involved with social housing: capital costs (i.e. bricks and mortar, along with land) and operating costs (i.e. debt servicing, utilities, maintenance, insurance, municipal taxes, etc. that a low-income tenant’s contribution towards rent does not cover).  When government funds social housing, almost all of the funding goes to private actors.  Virtually all of the capital costs are for private actors, including architects, cost consultants, general contractors, electrical contractors, drywall contractors, paving contractors, engineers, land surveyors, environmental consultants, soils consultants, lawyers and labourers.  What’s more, roughly three-quarters of all operating costs go to private actors (mostly for debt servicing).  All of which is to say that there’s a bit of a false dichotomy involved in this debate if one pits the private sector squarely off against the public sector.

-What does matter, in my view, is who owns and operates the housing once it’s built.  As I’ve argued here, I believe it is much cheaper for government, over the long term, when said housing is owned and operated by a non-profit entity.  And I think the rationale is quite simple: the mandate of a non-profit entity is to keep rent low over the long term.  Board members of non-profit housing authorities strive to serve low-income households, and they are kept accountable by their members (who are generally low income) at each year’s Annual General Meeting.  Further, their corporate by-laws forbid them from personally profiting from increased revenue gained from increasing the rent.  And if they ever sell the housing, they are required to do so to an organization with a similar mandate (it must be a “like purpose entity”).  By contrast, when such housing is owned and operated by private-sector actors, the incentive structure is turned upside down.   Put differently, non-profit entities (such as Toronto Community Housing Corporation) preserve affordability over the long term.

-Another reason for government to own and operate housing for low-income households is that “high-growth” areas need more affordable housing stock, and the private sector cannot be expected to engage in long-term urban planning on behalf of citizens.  As I’ve argued here, examples of “high-growth” areas in Toronto that require government to proactively get involved in building affordable housing include Toronto’s waterfront, Whitby, Richmond Hill, Brampton, the Downsview subway area and new suburbs.

(Note: Steve Pomeroy, Greg Suttor and George Fallis were of great assistance in helping me prepare the above information.  The usual disclaimer applies.)

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Comments

Comment from Victor Willis
Time: November 5, 2011, 9:12 am

Nicely put Nick. The “war” between private sector and public has become so polarized that we are not encouraged to unpack what work and wealth do when invested for society in community asset programs like social housing, is both an ethical and a business decision. I look forward to further treatises that make both the business and moral case for social housing.

Comment from Joy Connelly
Time: November 5, 2011, 10:21 am

As you know, Nick, I attended and thoroughly enjoyed this workshop. One of the big take-aways for me was the point you make here — that even in non-profit housing all the capital costs and most of the operating costs go to the private sector. As you say, the private/public debate is a a false dichotomy indeed!

Comment from Sylvia
Time: November 7, 2011, 7:30 am

Good analyses, Nick. However, as a Torontonian I must add the debate here in Toronto has more to do with who doesn’t need housing services and doesn’t want to continue paying for it, rather than who needs it and how the balance sheet looks like. We have a millionaire mayor, with millionaire friends and family who do not require social services from the city.
On the flip side, the top 1% of Toronto will be able to purchase the social housing sell-offs from Toronto and secure further long-term income. Pitting private against public profit is merely a smoke screen, as far as I can see. Greed continues to be a respectable incentive or we wouldn’t have the sorts of politicians we do.

Comment from John W. Warnock
Time: November 7, 2011, 1:12 pm

Existing social housing is still being sold off in Regina. The dramatic increase in the average price of houses sold on the market in the past three years has encouraged this. A friend of mine, a lone parent with two kids, was kicked out of the house she and her family had lived in for 20 years. They offered to sell it to her.

Part of the real problem is that when the federal government decided to get out of public housing around 1992, and devolved the responsibility for social housing from the federal government to the provincial governments, the feds fixed the amount of support they would give to keep up the existing housing. With no support from the federal or provincial governments, the social housing agencies in Regina first raised rents to get the needed cash for upkeep, hurting those with the greatest need. Then they started selling off the houses and a few apartments. It should be noted that the template agreement for this devolution was with the provincial NDP government headed by Roy Romanow. They also abolished rent controls in 1992, when the previous Tory government had refused to do so. Economists insisted that rent controls were a barrier to investment in apartments. There are fewer apartment units today in Regina than in 1992. But lifting the rent controls on older apartment gave Boardwalk the message and they moved in and bought a great many of the older apartments, did some splash work, and then raised the rents. They also bought Gladmer Park, the largest social housing development in Regina, raised the rents, and kicked out the low income tenants. The tenants went to the NDP government and begged them to take over the development, but they said no. As Roy Romanow told the Globe when he stepped down as premier, he was a Blairite before Tony Blair even got into politics.

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